Current ratio calculator
- Formula
- Current assets ÷ Current liabilities
Current ratio = Current assets ÷ Current liabilitiesCash, receivables, inventory, prepaids — due or used within a year.
Payables, accruals, deferred revenue, debt due within a year.
Current ratio
1.85×
How it’s worked out
- 1Current assets ÷ current liabilities$2,400,000 ÷ $1,300,0001.85×
Runs in your browser; nothing you type is sent anywhere. Amounts in US dollars.
Worked on a real month of books
Northwind Traders, Inc., September 2026 (accrual basis, USD), the month the free course is taught on. Every liability Northwind has falls due within the year. Every figure is read off the course's posted ledger, not typed.
- 1Current assetsCash + receivables + inventory + prepaid insurance$48,500
- 2Current liabilitiesPayables + accrued liabilities + deferred revenue$9,450
- 3Current ratio$48,500 ÷ $9,4505.13×
See the statements these come from in the course.
How to read it
The current ratio asks whether everything that turns into cash within a year covers everything that must be paid within a year. It is the broadest liquidity test and the one most often written into loan covenants.
Because it counts inventory and prepaids, it can look healthy for a business that could not actually pay a bill this month. The quick and cash ratios are the stricter versions.
Common mistakes
- Counting long-term debt as current, or forgetting to reclassify the portion due within twelve months.
- Comparing a month-end ratio to a year-end one when the business is seasonal.
Questions
- What is a good current ratio?
- Above 1.0 means current assets cover current liabilities. Many lenders look for 1.2 to 2.0, but the right level depends on the business: a subscription company carrying large deferred revenue can operate below 1 safely, because that liability is settled by delivering service, not by paying cash.
- Can a current ratio be too high?
- It can mean cash sitting idle or inventory and receivables building up. A ratio is a prompt to look at what is inside it.
Read it with
The metrics read alongside this one, and the terms it is confused with.
- Current ratio vs quick ratioThe current ratio divides all current assets by current liabilities; the quick ratio counts only cash, short-term investments and receivables, leaving out inventory and prepaids that cannot pay a bill this month.Compare
- Quick ratio calculatorQuick ratio is a liquidity and working-capital metric, calculated as (Cash and equivalents + Short-term investments + Accounts receivable) ÷ Current liabilities.Calculator
- Cash ratio calculatorCash ratio is a liquidity and working-capital metric, calculated as Cash and equivalents ÷ Current liabilities.Calculator
- Working capital calculatorWorking capital is a liquidity and working-capital metric, calculated as Current assets − Current liabilities.Calculator
- Current ratioCurrent ratio is a liquidity and working-capital metric, calculated as Current assets ÷ Current liabilities.Term
The formula is the one the glossary states, and the arithmetic is unit-tested. A ratio with nothing to divide by shows a dash — undefined is not zero. General information, not financial advice.